Kids and Money: Giving Them the Savvy to Succeed Financially

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Overview

Parents work and wish for their kids to grow into financially healthy young adults. They want them to have the savvy and sense of independence necessary to wisely handle the money they may earn, invest, and inherit. This book helps parents provide their children with the strong financial foundation they need. Topics include:
  • Specific techniques for helping kids differentiate between needs and wants
  • Ways to maximize the positive effects of allowance, chores, and money management
  • Steps to help parents guide their children to make responsible choices, handle debt, and live within their means
  • Techniques that will help parents teach their kids to be practical and responsible with money and to prepare for unforeseen financial crises

In her sharp and intuitive book, Pearl offers scores of innovative strategies to help parents teach children lifelong money skills and values.

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Editorial Reviews

From the Publisher
"The importance of teaching children the skills of financial management cannot be overemphasized.... Most families should add this guide to their personal libraries, and public and school libraries should consider its purchase a public service." (Library Journal)
Library Journal
The importance of teaching children the skills of financial management cannot be overemphasized. Pearl, a business reporter and editor, provides methods for parents and educators to teach kids how to devise and stick to a budget, keep track of where money goes, set goals, be wary of advertising and other commercial enterprises, and stop impulse spending. The chapter on saving and investing would be useful to anyone interested in learning more about simple vs. compound interest, CDs, DRIPs, and the stock market. The appendix is filled with more than 80 online resources that can help the whole family learn together. In addition to money matters, career and job-hunting information as well as college and entrepreneurial sites are included. Neale S. Godfrey's Ultimate Kids' Money Book S. & S., 1998 covers less and costs more. Most families should add this guide to their personal libraries, and public and school libraries should consider purchase as a public service.--Susan C. Awe, Univ. of New Mexico Lib., Albuquerque
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Product Details

  • ISBN-13: 9781576600641
  • Publisher: Wiley, John & Sons, Incorporated
  • Publication date: 1/28/1999
  • Series: Bloomberg Series , #32
  • Edition description: 1st Paperback
  • Edition number: 1
  • Pages: 272
  • Product dimensions: 5.62 (w) x 9.10 (h) x 0.70 (d)

Meet the Author

Jayne A. Pearl has been a business reporter and editor for more than twenty-five years. As a seasoned speaker, financial institutions, schools, and community organizations have sponsored her How to Gimme-Proof Your Kids workshops for parents and Turning Upside Down What You Think You Know About Money workshops for teens. She has been a columnist for Time Inc.’s Mutual Funds magazine, a regular commentator on public radio’s Marketplace program, and a financial parenting expert on the women-focused Web site Oxygen.com.
Previously, Pearl worked for Forbes magazine, launched a newsletter for Tom Peters (coauthor of In Search of Excellence), colaunched Family Business magazine, and has written extensively on corporate and personal finance, family business, and economics. Her e-mail address is jayne@kidsandmoney.com.
Visit her Web sites: www.kidsandmoney.com and www.jaynepearl.com.
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Read an Excerpt

Kids and Money

Giving them the savvy to succeed financially
By Jayne A. Pearl

Bloomberg Press

Copyright © 1999 Jayne A. Pearl
All right reserved.

ISBN: 1-57660-064-5


Chapter One

Making the Most of Allowance, Gifts, and Work

Where does money come from? this can be as touchy and tough a question for parents to explain to children as where babies come from. Much like sex, money is a complex issue, affected by our own childhood experiences and adult quirks and values. Unlike sex, though, the best way to teach our kids about the financial facts of life is to encourage them to begin experiencing it at an early age.

In order to experience how to deal with money, kids need to have some. There are five primary ways kids can get their little fingers on money: the dole, gifts, allowance, loans, and jobs.

This chapter will present many approaches you can take to provide your children with "learning capital": how to develop rules based on your family's values and financial circumstances, and how to get kids thinking and learning about making trade-offs, setting goals and priorities, delaying gratification, and seeing the value of hard work. By enabling your kids to experience handling their own money and to make their own decisions and mistakes, you will give them a measurable advantage in their future financial and material success.

On the Dole

Before the toothfairy comes for her first visit, before kids even begin to receive allowance, their first encounter with dead presidents often comes from money handed out on an as-needed, somewhat arbitrary basis.

There are some advantages to the dole system, says Prof. Sharon M. Danes, of the University of Minnesota's Department of Family Social Science. She lists several in her article, "Allowances and Alternatives," published by the Minnesota Extension Service in 1993, including:

* More control over the kinds and amounts of children's purchases

* Flexibility when there is irregular income

* Works well for regular, required expenses such as school fees

* Helps introduce the concept of money to the very young

But I'm not a big fan of this haphazard system. Parents may like the control it gives them, but the more control parents have, the less chance kids will have to learn how to handle money. Danes, who has spent a dozen years researching, training professionals, and presenting workshops to parents on family economics, points out other problems with the dole:

* May lead children to believe there's an inexhaustible supply of cash

* Can lead to power struggles

* Parents can lose track of how much they give to their children (which is often more than what they would give if they gave allowance)

* Children may become better at manipulating parents than managing money

* Children may equate purchases with love and approval

Danes suggests keeping track of how much money you give your child in a typical week and how it is spent. Make a chart with three columns: date, purpose, and amount given. After a week, use the chart to discuss with your spouse and child whether to switch to an allowance, and to base that amount on what has been spent on the dole system.

Whose Gift Is It Anyway?

Another way kids get money is when grandma or Uncle Jonathan sends a check for Brooke's birthday or a holiday. You can't control how much your kids get, but especially when they are young, you can-and should-limit how much of it they can spend and how much goes into their savings account.

Consider basing the amount of cash gifts kids can spend on their age, suggests Janet "Dr. Tightwad" Bodnar in her book, Mom, Can I Have That? (Kiplinger Books, 1996). For instance, preschoolers might be allowed to spend up to $20 of a cash gift-enough to buy a Barbie doll or action toy. "Six- to 12-year-olds, with more expensive tastes and a better-developed sense of how much things cost, get to spend gifts of up to $50." Bodnar recommends letting teens have discretion over gifts of up to $100.

Making Allowances

Giving an allowance may seem like an easy, foolproof proposition. Allowance is an effective way to start transmitting to your kids financial literacy, values, and decision-making skills. But your decisions about timing, amount, conditions, and coordination with a spouse or ex-spouse can turn your best efforts to teach children about money into a political minefield. Fortunately, parents and other experts have staked out some safe paths through the confusion.

When to Start

The main indicators of when your child may be ready for allowance are her emotional maturity, cognitive level, and what you want allowance to accomplish. Your child will provide you with plenty of clues. You will know they're able to learn something from allowance when they:

* Become aware of the relationship between money and shopping (which generally begins at about age 3)

* Can differentiate between different coins

* Are able to count, add, and subtract * Have opportunities for spending

* Begin asking you to buy them stuff when you shop

Don't confuse a child's interest in money with his readiness to appreciate its value. The jingle of shiny coins can be very appealing to youngsters well before they may be ready to learn about saving and spending. "I have a 5-year-old boy who loves collecting money but has no concept of its value," notes Sharon Jelinsky of Berkeley, California. "He doesn't get a regular allowance, but oftentimes he will ask if he can have the change in my pocket or at the register. He just loves collecting things."

Carol Seefeldt, professor of human development at the University of Maryland's Institute for Child Study, adds, "By around 7 or 8, depending on the child, allowance is probably necessary to teach children the meaning of money, how to use it, and how to plan." If your kids are older-even in their teens-and you haven't got them on allowance, don't worry; it's never too late to start.

Some families avoid allowance completely. "My husband and I don't believe in paying allowance on a weekly basis," says Jennifer Gerald, a stay-at-home mom in Goose Creek, South Carolina. "We are a family of six, and try to keep the 'team' mentality. We generally buy the little things (and of course the necessities) they want and need. I am wondering, though, if they will have very good money management skills as a result of what we are doing."

If you don't believe in allowances, you can give your kids other opportunities to earn cash and learn how to manage money. (Suggestions on how to do that appear later in this chapter.)

Two games can help your family put allowance in perspective:

The Allowance Game (Lakeshore Learning Materials, $14.95 plus $3.50 shipping and handling, 800-421-5354). This is even easy for young children to understand and appreciate. As they make a circuit of the board, players are instructed to do things "that kids really do," notes an 11-year-old, such as play a video game or forget their homework (and lose a turn). The first to save $20 wins.

Payday (ages 8 and up, Parker Brothers, $19.95) is a game of family finances that helps players learn about where money goes (especially unexpected dentist and house repair bills), taking out loans with interest, and taking investment risks. Players move their pieces from square to square of a one-month calendar for a predetermined number of months, have opportunities to invest in business ventures and gamble, and assume financial responsibility for day-to-day living expenses.

How Much

Zillions magazine, the Consumer Reports for kids, polled 784 children in 1996 from age 9 to 14 and found that 46 percent received some allowance (an equal number of boys and girls; kids 13 and older were less likely to get allowance than those 12 and under). The median take was $3.50 for kids ages 9 to 10 (up 50 cents since 1994) and $5 for 11- to 14-year-olds (unchanged since 1991). Boys and girls received the same amounts.

Some experts recommend giving $1 for each year of their age. "I personally think $5 a week is too much for a 5-year-old and that $15 is probably not enough for a 15-year-old," says Washington, D.C.-based money psychologist Olivia Mellan. What's right for your kids depends on three factors:

1. What you expect them to pay for. Does allowance have to cover school lunch? Movies? Clothes? If so, they'll need more than kids who brown-bag it to school and whose parents cover regular living expenses.

2. The child's level of maturity.

3. What you can afford. Not everyone can afford to pay their kids (especially if the family is large) several dollars a week. That can be a lesson itself. In an interview, Danes explained, "When parents include children in discussions of family financial problems, they are quite often surprised at how supportive and helpful children can be during these times. However, my research shows if you don't sit down in times of difficulty and talk to children about what's going on, they will assume they have done something wrong and that they are at fault."

Negotiating Raises

Eventually, many kids feel they need more money. They may just be getting greedy, they may feel the need for more financial independence, or they may find it difficult to pay for a growing list of expenses you expect them to cover. The Zillions survey found that almost 4 out of 10 kids who receive allowance get a raise automatically every year, although two out of every three children who asked for a raise didn't get one. Danes insists that allowance does not need to automatically increase each year. She says there are two reasons for a raise: escalating costs of expenses the child covers, such as school lunch; or you expect allowance to cover more expenses as the child matures. "That gets at the issue of having a reason for giving allowance," explains Danes. "There's no lesson to teach when the children expect an increase just because they're a year older. Instead, the reason for getting a greater part of the family income pie is so they can learn more about balancing demands and resources. It's a good time to review with them what they're getting, how they're spending it, setting priorities, and decision-making."

Instead of dismissing their requests (or demands) and snapping shut your wallet, open up the lines of communication. Ginger Ogle, a software writer, has two sons, 11 and 14. When they complained a couple years ago that they were not getting enough and claimed that everyone was getting more allowance than they were, she suggested they survey their friends. "It was enlightening for them," says Ogle, who also moderates the University of California at Berkeley Parents Network, an e-mail list of more than 600 parents associated with UCB who share information. "They found out that most of their friends were getting either the same or less than they were getting."

But be careful not to focus only on what other kids are getting. Patrick Ellis, another member of the UCB Parents Network, warns, "At least one of my kids always seems to have a close friend from a fairly wealthy family, so I avoid this tactic. When I tried it with my eldest when he was 6 it turned out he had a friend who got $50 a month-with no savings requirement."

Remember, allowance is supposed to be a teaching tool. Negotiation skills are an important part of that, which they're going to need for dealing effectively with friends, teachers, and eventually, their boss. Going rates in the marketplace are only one factor you might use when lobbying for a raise with your boss. Another key consideration is cost-of-living increases. Tell kids itching for a raise to document increases in the things they pay for. You can also tell them to list new expenses they might be willing to cover after an allowance hike. If you pay for school lunches now, you can add that amount to their current allowance, giving them the option of making their own lunch so they have more discretionary income. One mother did that with her 12- and 16-year-old daughters. The only problem she reports is, "The older one will skip eating to save money."

It may be fun and enlightening for you and your child to compare what their allowance would have been when you were their age. You can do just that with Exercise 1.1.

EXERCIS E 1.1: Allowance-Then and Now

To calculate what your child's allowance (or the price of anything) today was worth when you were their age, follow these three easy steps:

1. Determine the year you were the child's age: Your birth year + child's age = _______

2. Fill in the Consumer Price Index from the chart on the following page for the above year:

CPI the year you were the child's current age = _______

3. Calculate the value of your child's allowance when you were the child's current age:

Child's allowance x CPI when you were their age (#2 above) ÷ CPI this year = _______

For example, in 1998, my son, age 10, earns $4 allowance a week. I was born in 1954, so when I turned 10 in 1964, the CPI was 31.0. The CPI in 1998 was 163.0. Therefore, in 1964, his $4 a week allowance would have been worth 76 cents. In other words, 76 cents in 1964 would be equivalent to $4 today:

$4 x 31/163.0 = $0.76

Looked at backward, if I had received $4 a week in 1964, it would be worth $21.03 today:

$4 x 163.0/31 = $21.03

Here's another fun way to look at it. When I was a kid, I used to get five cents for each year of my age. When I was 10, I got 50 cents a week. In today's dollars, that would be worth only $2.63:

$0.50 x 163.0/31 = $2.63

Coordination with Spouses, Ex-Spouses, and Blended Families

Two things contribute to making allowance an effective learning tool: consistency and coordination between parents.

For consistency, give whatever amount you chose at a set time. The most popular pay period is once a week, but every other week is fine. One mother says her 71/2-year-old son prefers to get paid monthly. The longer the interval, the more they will have to learn how to plan and budget.

Coordination can be harder to achieve, because each parent may have different attitudes about money. "How money was handled in your family when you were a child affects how you handle money with your children," says Danes. "And because often opposites attract, couples can have conflicting attitudes about money, which can erupt when topics such as allowance come up." For instance, one parent may come from a family in which money was never discussed in front of children or in any public arena.

Continues...


Excerpted from Kids and Money by Jayne A. Pearl Copyright © 1999 by Jayne A. Pearl. Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Table of Contents

Introduction.

PART I: Planting Financial Roots.
Tools for grounding kids with financial savvy, constructive financial habits, and positive financial values.

Chapter 1: Making the Most of Allowance, Gifts, and Work.
On the Dole, Whose Gift Is It Anyway?, Making Allowances, Loans and Advances, Work for Pay.

Chapter 2: Saving and Investing for Tots to Teens.
Savings Incentives, Investing.

Chapter 3: Teaching Accountability for Cash and Credit.
Where Does the Money Go?, Keeping Track, Budgeting, Giving Kids Credit, Taxes.

Chapter 4: Guiding Little Big Spenders.
Setting Limits on Kids' Spending, The Battle for Your Kids' Brains and Bucks, Helping Kids Save Up for Their First Major Capital Expenditures, When to Say "No", Handling Financially Tough Times, Handling Wealth, Charitable Giving, Gambling, Betting, Lottery Tickets, and Other Bad Habits, Shoplifting, When to Bail Kids Out.

PART 2: Sprouting Financial Wings.
How to launch your kids into the world and equip them to live financially independent and productive lives.

Chapter 5: Getting Your Child to and through College
Saving Without Losing Your Sanity, Financial Aid, Repaying Loans, Shopping for the Right College, Living Away from Home.

Chapter 6: Helping Your Child Nab the Right First Job,
Understanding Your Role, Ready: Identifying Career Goals, Aim: Understanding the Job Market, Fire: Getting the Right Job, Evaluating Job Offers.

Chapter 7: Answering Sensitive, Nosy, Touchy Questions.
About: How Much You Make, Which Parent Earns More, Losing Your Job, Paying Income Taxes, Charitable Giving, Inheritance, Surviving Divorce, Blended Families, Using ATM Cards, Giving Friends Money, Allowance and Chores, Wanting What Other Families Have.

Appendix.
Online Resources for Becoming a Financially Savvy Family.

INDEX.

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